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Xsellarate Blog

WRITTEN & RESEARCHED BY

Jon Millikan

Expert Analyst & Contributor

Cash Discount Processing for Dummies

Updated: Oct 3, 2023


Cash Discount Processing For Dummies

Cash discount processing may sound complicated at first, but it’s actually a very simple and beginner-friendly system once you understand the basics. This detailed guide will explain everything you need to know about cash discount programs in plain English:


Is This Your First Experience With Cash Discount?

  • This Is My First Experience with Cash Discount

  • I Have Had a Few Experiences with Cash Discount

  • I am Unsure

  • Not My First Rodeo


Cash discount processing allows merchants to offer discounts to customers who pay with cash, check or debit card. These discounts incentivize cash payments over credit card payments and reduce the amount of processing liability merchants have to take on.


Here’s how it works:

  • Merchants set a standard price for all transactions

  • Credit card purchases are charged the full standard price

  • Cash, check and debit customers receive a discount off the standard price (usually 1-4 or 5%)

  • This discount essentially comes out of the fees merchants pay to card networks on credit card transactions

  • By bringing in more cash sales, merchants reduce their processing fees and retain more revenue

So in essence, merchants provide a discount on cash transactions by passing along some of the card fee savings to customers. The system benefits both the merchant and customer.


money and percentages

Why Do Merchants Offer Cash Discounts?

Merchants offer cash discounts for two main reasons:


1. Reduce Processing Fees

Every time a customer pays with a credit card, merchants get hit with processing fees by the card networks and banking organizations that they work with. These interchange fees are usually 1.5% to 3% of the total transaction amount.


With cash transactions, there are no processing fees. By incentivizing cash purchases with a discount, merchants bring in more cash sales which have lower costs. More cash sales = less card fees.


2. Increase Profit Margins

By reducing credit card processing fees, merchants also increase their profit margins and overall revenue. Cash discounts allow merchants to retain 1% to 3% more from every cash transaction that otherwise would have gone to fees.


When you add up these savings across hundreds of transactions daily, it really improves the bottom line. Merchants can save 10% to 40% on processing costs with cash discounts.


How Do Cash Discounts Work?

Implementing cash discounts requires just a few simple steps:


1. Partner with a Cash Discount Provider

Merchants work with specialized providers like Xsellarate, CardFellow or FattMerchant who handle setting up cash discount processing programs.

2. Configure the POS System

The provider will program your point-of-sale (POS) system to automatically apply the cash discount at checkout.

3. Display Signage

Merchants must display signs at checkout informing customers of the cash discount to comply with card network rules.

4. Process Transactions

When an employee rings up a credit card purchase, they charge the standard price. For cash/check/debit payments, the discount is automatically deducted from the standard price.

5. Deposit the Discounted Amount

On merchant receipts, there will be a standard price and discounted price shown. Only the discounted cash amount gets deposited for those sales.

It’s that easy! Cash discount transactions happen seamlessly at checkout just like any other payment.

How much of a discount can I offer?

How Much of a Discount Can I Offer?

Most cash discount providers allow merchants to offer a discount between 1% and 3%. The maximum discount rate allowed is usually 4%. Many platforms will require you to leverage the maximum amount of 4% to process cash discount.



The appropriate discount rate depends on your business model and card acceptance costs. Your provider will determine the optimal rate for your volumes and industry. A higher discount incentivizes more cash transactions.


What Are the Benefits for My Business?

Top benefits of cash discount programs include:

  • Lower credit card processing costs - cash discounts can save merchants 10% to 40% on fees

  • Increased revenue and profit margins from reduced fees

  • Attract new customers by advertising the cash discount

  • Build loyalty with existing customers who feel rewarded by the discount

  • Simple to implement with no major POS equipment changes

  • Compliant with card network rules when following regulations

  • Receives very positive customer response and participation


Is Cash Discount Processing Legal?

Yes, cash discount programs are permitted nationwide when implemented properly in accordance with card network rules. They are NOT considered a credit card surcharge.

Top providers ensure your discounts comply with all Visa, Mastercard, Discover and Amex regulations. This avoids any issues down the road.


For more clarification check out our up-to-date regulations on Xsellarate.com


How Do Customers React to Cash Discounts?

Customers overwhelmingly respond very positively to cash discounts for three key reasons:

  1. They feel good about getting a discount or "getting a deal." It rewards their choice to use cash.

  2. Discounts are seen as savings, not an extra fee. Customers appreciate saving money.

  3. Cash discounts actually change purchasing behavior and encourage using cash. Customers will deliberately use cash to get discounts.

With clear signage and staff communication, cash discounts create a loyalty incentive.


hand pressing button to get started

Getting Started with Cash Discounts

Follow these steps to implement smooth, effective cash discounts:

  • Research providers thoroughly and choose one known for good compliance and customer support.

  • Provide detailed information on your average transaction size, sales volume and business model.

  • Work closely with your provider through POS configuration, staff training, signage placement and launch.

  • Promote your new cash discount program through online ads, social media, receipt messaging and other channels.

  • Analyze credit card reports frequently to ensure your program is optimized and performing as intended.

Bringing It All Together

In summary, cash discount processing is a beginner-friendly model that provides tangible benefits for merchants of all types and sizes. It requires just a few simple steps to start saving on fees and rewarding loyal cash customers.

With an experienced partner handling compliance and maximizing your rewards, implementing cash discounts is truly a no-brainer!


FAQ's and Reference

Do I need new POS equipment?

Usually not - top providers can program existing terminals to handle cash discounting in many cases.

How do I explain discounts to confused customers?

Can I stop discounts if I want?

Do cash discounts impact my taxes?

Who offers the best cash discount programs?


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Jon Millikan

Expert Analyst & Contributor

Jon has been writing for Xsellarate about small business solutions and financing since 2022. He started writing professionally about business related topics in 2012. Jon has been featured in Business Insider, OC Journal, the OC Wave, Entrepreneur Magazine & other publications. He has a bachelor's degree in Business Administration from California State University Monterey Bay and currently resides in Huntington Beach, California.

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